The Japanese market offers enticing, stable, and scalable business opportunities for international companies looking to hire in Japan. The country was the world’s third-largest economy in 2022 and is one of the top high-tech powerhouse economies in Asia and beyond.
Japan is home to 62 Fortune 500 companies and excels in information technology, healthcare, and automotive sectors. Japan also invests considerable amounts into research and development (R&D), with 20% of the top global R&D spenders based in Japan.
Around 450 British companies, from major corporations to small businesses, currently operate in Japan. Besides offering a vast open economy and cutting-edge business culture, the country is a stable place to do business. It acts as a strategic stepping stone to other Asian markets.
There are certain things that UK companies will need to understand about the Japanese employment system and Japanese employee culture if looking to hire in Japan. Aside from compliance with the Japanese legal system, it’s important to adhere to employment regulations regarding payroll, employee benefits, taxes, etc.
In this guide, we’ll cover how a UK company can hire Japanese employees. We’ll also explore what UK companies need to know if partnering with an Employer of Record Japan (EOR Japan) to oversee the legalities and budget accordingly.
Can UK Companies Hire Japanese Workers?
There are no rules or regulations that do not allow UK companies to hire employees in Japan.
However, many technicalities and local customs must be considered to ensure that your company follows Japanese employment laws.
Below are some things to keep in mind when hiring in Japan and a few ways for a UK company to start hiring workers in Japan.
3 Ways for UK Companies to Hire in Japan
- Hire Japanese Skilled Workers as Contractors
Hiring workers as contractors in Japan might be the easiest choice. Still, there are specific factors that your company will need to consider to ensure compliance with the Japanese employment system.
In Japan, independent contractors are self-employed individuals. They sell their services to a company or individual while maintaining the freedom to choose their own working hours and schedule. Contractors in Japan are treated separately from the company’s full-time staff. Independently engaged contractors do not receive a predetermined monthly salary and are responsible for their own work-related expenses.
Hiring employees this way allows companies more flexibility and is a more cost-effective hiring solution.
However, if your company is considering engaging an independent contractor, you must be aware of Japanese law and the potential legal complications associated with incorrectly categorizing these contractors as full-time employees. Such misclassifications could result in tax penalties and legal complications.
- Establish a Foreign Entity in Japan
Another option for UK companies to hire in Japan is to establish a foreign entity. Establishing a local entity allows UK companies greater control over recruiting local talent, facilitating payroll, and setting up a local branch.
Depending on your business, securing authorization or specific licenses from local authorities might be required to ensure your company’s operations comply with local laws.
Choosing to establish a foreign entity is often a favourable choice among companies. However, this process can be costly and require a considerable initial investment. It also requires familiarity with the Japanese employment system.
If your company is considering this route, make sure to consult with local legal experts or institutions for guidance throughout the process.
- Partner with an Employer of Record in Japan (EOR Japan)
The third and arguably easiest option is to engage an Employer of Record (EOR) to hire, pay, and manage your Japanese workforce.
An EOR is already set up as a legal entity within Japan. This means they can help ensure your company is aligned with local labour laws when building your global team.
An EOR Japan partner will act as a legal employer for your staff in Japan. It will offer global payroll solutions for company employees and handle tax deductions and other mandatory government contributions.
Ultimately, an EOR Japan is the easiest option for hiring employees in Japan and will assist in streamlining the employee onboarding process. It will also protect your company against any legal mishaps and violations of Japanese labour law so you can focus on your business.
Challenges for Companies Hiring in Japan
Companies planning to hire in Japan should take the time to formulate a strategic approach. Because there are many differences between UK and Japanese employment culture, you’ll want to do lots of market research and plan to mitigate any challenges with the Japanese employment system.
Cultural Differences and Language Barriers
Understanding and respecting cultural differences is crucial for UK companies entering the Japanese employment system. Japan has a unique business culture that emphasizes hierarchy, politeness, and teamwork. Before hiring in Japan, you should familiarize yourself with the basics of Japanese business etiquette, communication styles, and social norms.
While many Japanese workers are skilled in English, it’s important to remember that miscommunication and misunderstandings may occur. Any disputes that arise should be dealt with fairly, reasonably, and patiently.
Misclassification of Employees
When hiring Japanese employees, your company must ensure they are classified correctly.
If improperly classified, your company may face fines, legal issues, and reputational damage. Such fines for labour law violations can amount to JPY 300,000 and up to six months of imprisonment.
To avoid such fines and legal complications, consider consulting a legal expert, such as an Employer of Record (EOR Japan) who can help your company prevent misclassification through proper contracts.
Work Permits
Non-Japanese nationals require the appropriate visas and work permits to work in Japan. Suppose the prospective employee is not legally entitled to work in Japan. In that case, your company must understand the legal working requirements to assist your employee in obtaining the necessary documentation.
Incorrect Payroll Contributions and Deductions
Your company must consider and abide by the legally required contributions, including health insurance, unemployment insurance, work accident compensation, and more.
You must calculate, deduct, and contribute the correct amount to Japanese authorities. Lack of or incorrect deductions could result in legal complications or fines for the employer.
It’s best to consult with tax experts or engage an Employer of Record (EOR Japan) to understand the tax implications for your company both in Japan and potentially in the UK.
Things to Know about the Japanese Employment System
Japanese employee culture revolves around an intense commitment, ethics, and extreme dedication to the company. Japanese companies expect their employees to treat the workplace as a second home and be responsible and appreciative.
Though the work culture in Japan has undergone much modernization, companies are still very traditional and can have a strict system. Here are a few things to consider about the country’s system and employees when hiring in Japan.
Japanese Minimum Wage
The national minimum wage in Japan varies by prefecture. The average national minimum wage in Japan is ¥961 per hour. However, the minimum wage can vary by region and industry, ranging from 882 JPY in places like Kyoto to 1,072 JPY in Tokyo.
It is also customary for employers to compensate employees for any overtime work. The maximum overtime is five hours per day, 45 hours per month, and 360 hours per year. An additional 25% of the employee’s salary is added for weekdays and 35% for weekends and holidays.
Generally, if an employee regularly works overtime, a written agreement must be filed with the Labour Inspection Office before the employee formally begins. These terms should also be outlined in the employee’s labour contract.
Japanese Payroll Cycle
The payroll cycle in Japan is generally monthly. This means employees will receive one paycheck at the end of each month.
There is also something in Japan known as the 13th salary. It is customary to pay a 13th month and sometimes even a 14th-month salary as a summer bonus paid in June and a winter bonus paid in December.
This is a practice adopted by many Japanese companies, and more international companies today have opted for a more typical 12-month payment period.
Taxes and Social Security Contributions
Both the employer and the employee pay Japanese taxes. Employers are responsible for withholding income taxes from employees' salaries and contributing to the government on behalf of employees.
In Japan, employers must contribute to the following insurance systems:
- 9.15% toward pension contribution
- 4.905% toward health insurance contribution
- 0.6% toward unemployment insurance
- 0.25% - 8.8% toward work accident compensation
- 0.36% toward family allowance
Rates are often specific to districts within Japan, and rates for health insurance contributions may vary for workers between the ages of 40 and 65.
Worker’s accident compensation is paid solely by the employer. Employment, health, and employee pension insurance are shared by both the employer and employee.
Personal Leave Entitlements
Employment contracts outline paid time off entitlements in Japan. Such leave entitlements include paid annual leave, maternity leave, sick leave, and more. The number of days off allowed depends on the years the employee has been with the company. Statutory paid leave is an additional benefit on top of any public holidays.
These entitlements include:
- Employees who have worked six months or less are entitled to 10 days of paid leave.
- Employees who have worked up to one and a half years are entitled to 11 days of paid leave.
- Employees who have worked two and a half years are entitled to 12 days of paid leave.
- Employees who have worked three and a half years are entitled to 14 days of paid leave.
- Employees who have worked four and a half years are entitled to 16 days of paid leave.
- Employees who have worked five and a half years are entitled to 18 days of paid leave.
- Employees who have worked six and a half years are entitled to 20 days of paid leave.
Any unused days will expire after two years.
Public Holidays in Japan
There are 16 publicly observed holidays in Japan. Most employees are entitled to take the following public holidays off with pay:
- January 1 (Observed on January 2): New Year’s Day
- January 9 (Second Monday in January): Coming of Age Day
- February 11: National Foundation Day
- February 23: Emperor’s Birthday
- March 21: Vernal Equinox
- April 29: Showa Day
- May 3: Constitution Memorial Day
- May 4: Greenery Day
- May 5: Children’s Day
- July 17 (Third Monday in July): Marine Day
- August 11: Mountain Day
- September 18 (The third Monday in September): Respect for the Aged Day
- September 23: Autumnal Equinox
- October 9 (Second Monday in October): Health and Sports Day
- November 3: Culture Day
- November 23: Labor Thanksgiving Day
Traditional Japanese Working Customs
The Japanese working culture is still quite traditional in many parts of the country. Japanese employee culture is extremely process-oriented, giving great attention even to micro-details.
Because of the emphasis on working as a second home, it is common for many Japanese employees to put in overtime. This is in part because traditional companies in Japan also follow a strict hierarchy system.
In recent years, laws have been put into place to establish a basic limit on overtime. In special circumstances, employers may temporarily extend work hours beyond these limits when truly necessary. However, there is an exemption to the overtime limit that applies to highly skilled, high-paid professionals.
Although foreign companies are not held to the exact same standard, it is something that your company should understand.
Cultural Diversity in Japanese Workplaces
While foreign companies can emphasize their international outlook, it's crucial to remember that you are operating in Japan. Consequently, the work culture should embody a fusion of both.
Navigating a Japanese work setting can pose challenges. However, embracing and adapting to this distinct business culture is the first step to operating effectively in Japan.
Traditional vs. Modern Japanese Work Practices
In traditional Japanese companies, seniority and promotions hinge on achievement. Managers delegate tasks, entrusting employees to meet targets with minimal micromanagement. Japan also follows a hierarchy-based address and uses honorifics to address people older than you or of higher status.
Honorifics are used to show politeness and are very important. Politeness is extremely important in Japanese culture, which is reflected in the language system.
This contrasts the Western corporate atmosphere which is sometimes more casual and it is not unusual in the West for colleagues to address each other by their first names. However, prioritizing task accomplishment while respecting the company's core values is always first. Employees should observe local customs and conduct themselves in a way that is conducive to the workplace.
In essence, whether following traditional or modern company culture, understanding Japanese business culture and work environment can present challenges. However, hiring through an Employer of Record Japan (EOR Japan) can help simplify some of these hurdles and by communicating directly with employees.
Partner with a Trusted Employer of Record
Though hiring in Japan may seem complicated, it doesn’t need to be. Expert EOR Japan services like Borderless are here to help you through the process. By partnering with an established employer of record (EOR), you can leave all the nitty gritty details of labour laws, employment contracts, culture compliance, and communicating with employees to the EOR so you can prioritize growing your business.
As an established EOR, we can help you hire in 170+ countries, including Japan.
Borderless is highly knowledgeable and experienced in assisting UK employers looking to hire in Japan. Book a demo today to see how Borderless can help you hire quickly and efficiently.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
